PepsiCo, Inc. Earnings: Will PEP Stock Increase Its Dividend in 2020?

What to Expect From PepsiCo, Inc. This Earnings Season

Despite having roots going back more than a century, PepsiCo, Inc. (NASDAQ:PEP) has been delivering some solid returns to investors lately. Over the past five years, the company’s share price surged more than 50%, which is pretty impressive, considering that this is a blue-chip stock commanding about $200.0 billion of market capitalization.

At the same time, PepsiCo is one of the most reliable dividend payers in the entire stock market. And since the company will be reporting earnings on February 13 before market open, let’s see what the latest PEP stock news could mean for income investors.

As is the case with most stocks in earnings season, the first thing to look for is how the company performs compared to Wall Street’s expectations.

For the fourth quarter of 2019, Wall Street expects the company to report $20.3 billion of revenue, which would represent a 3.8% increase year-over-year. (Source: “PepsiCo, Inc. (PEP),” Yahoo! Finance, last accessed February 7, 2020.)

At the bottom line, analysts are projecting earnings of $1.44 per share for the quarter, which would be a 3.4% decline from the earnings per share in the year-ago period.

It should be noted that PepsiCo has been doing a pretty good job at outperforming Wall Street’s expectations. Over the past 12 months, the company has beaten or met analysts’ earnings-per-share estimates in all four quarters.

Of course, in this day and age, an earnings beat doesn’t necessarily translate to a soaring share price. In fact, there have been plenty of instances in which a company beat both top- and bottom-line expectations and its stock still fell.

(Source: Ibid.)

Considering that PepsiCo’s expected earnings growth rate isn’t that impressive (it operates in the food and beverage industry, after all) and that its share price has already soared, I don’t expect PEP stock to keep shooting through the roof.

But that doesn’t mean you should ignore the company. As it stands, investors can still earn a return from Pepsico stock with certainty.

I am, of course, talking about dividends.

The mass-market food and beverage industry is nothing exciting, but once a company builds a solid market position, it can run an extremely durable business. PepsiCo has many established brands, including “Pepsi,” “Lays,” “Doritos,” “Tropicana,” “Quaker,” and “Aquafina.”

The neat thing is that people tend to buy these products on a regular basis, regardless of where we are in the economic cycle. As a result, PepsiCo essentially runs a recession-proof business.

Thanks to this characteristic, the company is able to offer one of the most reliable dividend streams in the stock market.

Right now, PepsiCo has a quarterly dividend rate of $0.955 per share, giving PEP stock an annual yield of 2.6%. (Source: “Dividend Information,” PepsiCo, Inc., last accessed February 7, 2020.)

Sure, there are plenty of stocks with higher yields, but, as I said, what sets PepsiCo apart is the reliability of its payout. The company has increased its dividend in each of the past 47 years.

The best part is, even though PepsiCo doesn’t boast the most impressive earnings growth rate, it should have no problem continuing to return cash to investors through dividends.

Will PepsiCo, Inc. Increase Its Dividend in 2020?

Despite dishing out bigger dividend checks every year for decades, PepsiCo isn’t really paying out all that much. In the third quarter of 2019, the company generated core earnings of $1.56 per share, which easily covered its quarterly dividend payment of $0.955 per share. (Source: “PepsiCo Reports Third-Quarter 2019 Results; Updates Full-Year Organic Revenue Growth Target,” PepsiCo, Inc. October 3, 2019.)

In the first nine months of 2019, PepsiCo’s core earnings came in at $4.07 per share. During this period, the company declared three quarterly dividends totaling $2.8375 per share. That translated to a payout ratio of just 69.7%, leaving a sizable margin of safety.

And I should point out that, for companies with a track record like PepsiCo, management almost always wants to continue raising the dividend. Think about it: if a company has been raising its payout for decades and that streak suddenly stops, management will have some serious explaining to do.

Therefore, with a solid business model and a low payout ratio, PepsiCo will likely make 2020 its 48th consecutive year of annual dividend increases.

At the time of this writing, the food and beverage giant has declared and paid three quarterly dividends of $0.955 per share. So, given the annual payout increase pattern, the next dividend declaration will likely be for the same amount.

However, in recent years, PepsiCo, Inc.’s management has been announcing dividend increases in the fourth-quarter earnings release.

So even though the next dividend declaration will likely be for the same amount as before, PEP stock investors can still expect a dividend increase announcement. The increased dividend will likely start with the June payment.